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Brad Plummer, SVP, Employee Benefits Practice, Cottingham & Butler, sat down with The Council’s Katie Oberkircher to talk prescription drugs and the proposed rule by Health & Human Services (HHS) to tighten the reigns on rebates and fees paid to PBMs under the Medicare/Medicaid anti-kickback statute.

Does the proposed rule really bear the promise of shifting rebates from PBMs to consumers? How, practically, could that work?

There are programs available in the market today with PBMs where you can essentially have the rebate realized at the point of sale. To my knowledge, they’re not widely adopted, but they are out there and when you do that, my understanding is that the employer’s plan foregoes some of the total rebate opportunity in exchange for allowing participants to capture them. So, when employers choose point-of-sale rebates, they may actually be shifting more cost into the plan than they would if they were fully capturing the rebates outside of the plan.

Historically, it hasn’t been economically advantageous to the plans, but as more people gravitate toward consumer-driven [health plans], there is an interest to try to soften that blow when that person has to walk into a pharmacy and they still have a $3,000 deductible.

It is entirely possible that if the rebates go away, spread pricing could widen in other places. It’s like a balloon: if you push on it somewhere, it’s going to pop out somewhere else.

I think [the proposed HHS rebating rule] could only be a good thing in terms of opening more dialogue, so I am a fan of it from that perspective.

The next thing [is], if rebates didn’t exist globally, the thought process around how we structure tiers in the pharmacy program would be totally changed because now it’s all about positioning for drug volume and market share.

If you take rebates off the table, one would hope that it changes the focus going forward to a different metric of ‘How much am I actually paying per member per month for drugs?’ versus ‘What’s the headline price; what are all the mechanisms that I have to get to the final inventory?’. I think overall, it’s a very good thing for the marketplace, even if it has limitations.

With the proposed rule, premiums could potentially increase, what are the other effects?

Undoubtedly, any time you have a change to an economic landscape, it’s going to take some time before you have a settling effect, so there will be inequities that will be highlighted as it finds new level ground. But there’s a lot that is unknown in terms of the carriers and how they are going to react.

Take administration for self-funded groups, for example. Whether it be from a carrier-based platform or TPA platform, there are significant administration credits that are given, depending on how you allow that payer to handle the drug rebates.

One study we did with [a group of large self-funded] clients showed the companies that carved their PBM out from the medical payer had 27% lower prescription drug costs than those of similar size that left the pharmacy benefits carved-in with their medical payer. There is a lot of money flowing back and forth that no one can see.

This rule focuses on a public program right now. How would it affect those who are insured through employer market?

If it’s only affecting Medicare, one could only think it would be an indirect impact at the moment. If the carriers that are playing in the Medicare supplement space suffer a significant hit to their income, they may go look to get it back someplace else, so that could be a side effect. If you assume that this strategy is going to eventually make its way through the employer-sponsored market, my opinion is for employers, say roughly 500 lives and above, it is not likely going to have a big impact to them.

Most of those [employers] today are either fully, or nearly fully, realizing the value of the rebates. It’s just a matter of whether they are keeping those rebates for themselves or whether they are sharing those with the plan participants. For the largest employer segment, I wouldn’t see it being a tremendous impact going forward, but for the smaller part of the market, it could help lower what the total spend looks like. How those carriers react to the loss of the income stream is hard to tell.

Are there PBMs who pass through the total amount of the rebate?

Yes, [these PBMs] don’t structure their formulas to maximize rebates, they structure their formulas on efficiency of spend and drug efficacy. However, rebates have exploded to 20-30% of the total drug spend, so ignoring rebates completely could be perilous because there are probably some drugs out there that have rebates that are still unique in the market. They may be trying to gain market share, but it’s still a viable strategy at this point.

I think that if this proposed HHS rule gains traction, then you would essentially have a government price for a drug and a private market price for the drug. That should lead to a whole other dialogue about why a difference exists. Then hopefully the dominoes can start to fall, and we start looking at rather than procuring things based on rebate, we’re procuring them based on efficacy outcomes, and other value-based measures. That approach isn’t typical today. Making things more transparent is not a bad idea.